We are pleased to submit this 2002 Annual Report to you, our members and owners. In 2002, we experienced marked growth in our CC&N, the substantial completion of two major capital improvements, and continued environmental law change. The coming year will be one of intense development in the northern portion of our service area with the addition of new residential and commercial developments.

The Company remains in a sound financial position, which speaks highly of our efficient operation given that it has been fifteen consecutive years without a single rate increase. During 2002, with the assistance of external consultants, the Company performed a detailed analysis of our current rate structure and financial position. We are pleased to inform you that a rate increase was not determined advisable at that time; however, as operating costs rise, the Company continues to monitor the need to increase its rates and is committed to keeping our customers informed should such an increase be necessary in the future.

Capital Improvements … During 2002, a major storage facility was constructed and commissioned. This new two million gallon reservoir is located on Duval Mine Road west of Green Valley and will provide adequate storage to meet the demands of our customers and provide enhanced fire fighting capabilities. This new reservoir is an important element of our water system and will reliably serve our customers for many years to come.

A new production well was substantially completed in 2002 and commissioned in early 2003. This new well, located in the northern portion of our service area, is a replacement for our oldest well. This new well will add additional capacity to our system and will provide higher quality water to our customers.

Growth … During 2002, the Company requested from the Arizona Corporation Commission to extend its CC&N boundaries north of Duval Mine Road to serve a new commercial complex and new residential developments on the east and west sides of I-19. The Company also requested an extension to encompass existing customers located just outside the CC&N boundaries. These expansion areas represent approximately 1.25 square miles, an approximate 15% increase in the area we are permitted to serve.

In terms of numbers of customers served, we experienced significant growth in our service area. A total of 160 new residential, commercial, and irrigation accounts were added through development of existing lots and the growth in several small subdivisions. This compares to 68 new accounts added in 2001. Water sales increased approximately 77 million gallons as compared to the prior year. We attribute this increase to the decrease in precipitation, elevated temperatures, and growth in our system. 

Fifteen Years Without A Rate Increase … We last increased our water rates in 1987. Even though we have experienced increased operating costs in those intervening years, the Company prides itself in continuing to offer our members low rates and a high level of customer service. Prior financial projections indicated that expenses would eventually rise to meet revenues. Consequently, an analysis was performed to evaluate the need and timing of a rate increase. The findings indicated that although a rate case might be warranted at this time, the current regulatory climate would likely not be conducive to seeking an increase. We continue to analyze the need for a rate increase and remain committed to keeping our customers informed throughout the process.

·Balance Sheets

·Statements of Revenues and Expenses

·Statement of Cash Flows

Water Quality … In 2002, the water delivered to our members met or surpassed every health and safety measure required by the  United States Environmental Protection Agency, the Arizona Department of Environmental Quality, and Pima County.  The Company has initiated a study to determine alternatives to meet new arsenic regulations. EPA reduced the allowable levels of this contaminant from 50 parts per billion (ppb) to 10 ppb and stipulated that compliance must be achieved by January 2006. Although our arsenic levels barely exceed the lower limit, we are actively evaluating alternatives to meet this new rule, an obligation that will come with a heavy financial burden.

Conservation … The balance between meeting our obligation to serve water to our customers in a period of drought and our regulatory obligation to conserve are often at odds; however, the Company remains committed to educating our customers in conservation methods. We continue to participate in area-wide conservation efforts and programs and have an active media campaign. 

In 2002, we sponsored or participated in several informative presentations in the community and have more planned in 2003. We also received state and national acclaim for our innovative conservation related feature on our website.  Water On the Web (WOW) was introduced during 2001 and continues to receive an increasing number of visits and generate a tremendous amount of positive feedback from our customers and others in the water community. 

We will continue to work with our members to conserve water in our desert community.

Community Water Company, its staff and Board of Directors, remains committed to providing the best customer service, and the lowest cost, highest quality drinking water for our members. We look forward to serving you throughout 2003.  Our annual meeting is scheduled for April 22, 2003 at 10:00 A.M., with registration beginning at 9:30 A.M. at the Pima County Library (Conrad Joyner Branch).  We encourage you to attend and look forward to seeing you there.
 
 
 
 

Raymond L. Smith, Ph. D.

Chairman of the Board
 

Michael D. Weber, P. E.

President & General Manager
 
 

April 11, 2003

The following financial statements are an abbreviated version from our annual report.  Available at our office is the complete audited financial statements.

Balance Sheets
For the years ended
December 31, 2002 and 2001

                                          2002                2001
Assets

Utility plant:
 Plant in service, at cost            $16,059,274         $14,974,931
 Construction work in progress            598,553             427,704
                                       16,657,827          15,402,635
 Less accumulated depreciation          5,433,096           5,114,108
   Total utility plant                 11,224,731          10,288,527

Current assets:
 Cash and cash equivalents                669,270           1,209,915 
 Securities available-for-sale, 

   at market                              119,047             416,375
 Accounts receivable, less allowance
   for doubtful accounts of $3,200
   in 2002 and 2001                       179,307             169,592
 Materials and supplies                    38,166              50,774
 Prepayments                               19,389              19,197
   Total current assets                 1,025,179           1,865,853

Deferred charges:

 CAP Capital Charges                      336,256             278,765
 Other                                     64,184              67,602

   Total deferred charges               1,025,179           1,865,853

                                      $12,650,350         $12,500,747

Membership Interest and Liabilities

Membership interest:
 Memberships and contributions           $ 48,010            $ 48,010
 Accumulated surplus                    7,127,766           6,859,149
 Accumulated other
 Comprehensive income                      14,436               6,939
   Total membership interest            7,190,212           6,914,098

Current liabilities:
 Accounts payable                          98,920             347,528
 Accrued taxes                             67,917              85,502
 Other liabilities                         71,502              69,878
   Total current liabilities              238,339             502,908

Deferred credits:
 Refundable advances for
   construction                         4,019,985           3,901,510
 Other                                    101,948              90,805

   Total deferred credits               4,121,933           3,992,315

Contributions in-aid-of 

   construction net                     1,099,866           1,091,426

                                      $12,650,350         $12,500,747

                                          2002                2001

Operating revenues                     $2,128,843          $2,036,745

Operating expenses:
 Operations                             1,194,906           1,147,142
 Maintenance                              109,813             113,806
 Depreciation                             343,214             324,881
 Taxes - other                            264,859             291,444
   Total operating expenses             1,912,792           1,877,273

Excess of operating revenues
   over operating expenses                216,051             159,472

Other revenues:
 Interest income                           27,835              73,766
 Other income, net                         24,731              16,620

Excess of revenues over expenses       $  268,617          $  249,858

                                          2002                2001

Cash flows from operating activities:
Excess of revenues over expenses      $   268,617         $   249,858

Adjustments:
 Depreciation and amortization            343,214             324,881
 Depreciation and amortization included
    in operations and maintenance          53,446              43,505
Change in:

  Accounts receivable                      (9,715)             (4,962)
  Materials and supplies                   12,608                 (87)
  Prepayments                                (192)              3,527  
  Deferred charges, net                    (3,926)            (28,233)
  Accounts payable                        (15,680)            (11,867)
  Accrued taxes                           (17,585)              4,808
  Other liabilities                         1,624              10,879

  Deferred credits, net                    (2,057)            (12,507)
   Total adjustments                      361,737             340,425

   Net cash provided by
      operating activities                630,354             590,283

Cash flows used in investing activities:
Capital expenditures                   (1,592,809)         (1,095,819)

Proceeds from sale of assets               13,970                   0
Proceeds from maturities and sale
   of securities available-for-sale       304,825             503,227 
Purchases of securities
   available-for-sale                           0            (300,000) 
Central Arizona Project

   capital expenditures                   (57,491)            (28,746)
   Net cash used in 

      investing activities             (1,331,505)           (921,338)

Cash flows from financing activities:
 Proceeds from refundable advances
   and contributions                      218,491             303,339
 Repayments of refundable advances        (57,985)            (66,690)
   Net cash provided by
      financing activities                160,506             236,649

Net increase (decrease)
   in cash and cash equivalents          (540,645)            (94,406)

Cash and cash equivalents
   at beginning of year                 1,209,915           1,304,321 
Cash and cash equivalents
   at end of year                        $669,270          $1,209,915 

Non Cash Investing activities:

   Accounts Payable purchase

      of utility plant                    $70,518            $303,446